The affects of the strike in the metals industry

The impact of the strike in the metals industry in South Africa could have far reaching implications and unions must accept that actions always have consequences. I have heard countless stories of wanton vandalism, assaults, intimidation and many other horrific stories relating to the strike. I personally came close to being caught up in an incident that involved ‘strikers’ and all I can say is that I was grateful that I was in a car and could speed away from the incident.

I say ‘strikers’ as I am sure that 95% of the ‘strikers’ were hired hands because in most instances I have heard that the intimidation was just too organised. According to employers I have spoken to none of the ‘strikers’ were recognised by the employers, and the nature of the aggression of the ‘strikers’ does not fit the profile of their employees. In other words they (the ‘strikers’) were bussed in. Not an unusual tactic in South Africa.

The threats on the lives of office employees is inexcusable and should be dealt with but then we live in a country where our law enforcement is in complete disarray in most eyes.

Then I hear the stories of where companies have worked ‘night shift’ to avoid the ‘strikers’ with maybe 10 to 20 percent of their normal workforce, and have managed to manufacture at least 80 percent of their normal monthly production. As a result, the monthly profit has risen dramatically because of not having to pay the extra wages.

Many companies have now just decided to close their doors – more unemployed – and others have serious cash flow problems and cannot afford to pay their employees, so are only working a four day week until they recover. This is going to put employees under even more pressure to pay their debts because even though they approach the employer for a loan the employer simply does not have the money to lend.

All through this the Union bosses collect hundreds of thousands of Rands from their members every month and continue to “Live a life of Reily”. Have the employees really analysed what they get for their monthly contributions? A month off work with no pay that will take them years to recover from! A funeral policy! Whoopee!!

This strike has really annoyed many and you have got to ask whether Numsa has pushed some unwanted buttons? You only have to look at the international headlines in July, in particular those related to the automotive OEMS, where numerous million-dollar projects are being awarded and none are directed South Africa’s way.

So are foreign automotive investors at the point of losing patience with strike-prone South Africa? Or will militant trade unionists be proven right in their gamble that multinational motor companies are too deeply embedded in South Africa to walk away? These are the questions asked by David Furlonger for his cover story in a recent issue of Financial Mail.

Furlonger continues: “Though there appears to be no question at this stage of disinvestment by any of SA’s seven full-scale vehicle manufacturers — BMW, Ford, General Motors, Mercedes-Benz, Nissan, Toyota and Volkswagen — there is a sense that they may reconsider the scope of their presence here. BMW and Datsun, Nissan’s reinvented entry-level brand, admit that plans to build new cars in SA were put on hold because of the uncertain labour environment.”

“The cars would have been mainly for export but the companies say they can’t risk an unreliable workforce. Last month, Datsun’s global head, Vincent Cobee, expressed regret at having to bypass SA for the Go car, which is designed for emerging markets and will go on sale in SA in a few weeks. The first generation of the car will be imported from India.”

The South African and sub-Saharan Africa markets may have good long-term prospects but they are not that important to the OEMs, in world terms, that the usual rules of economics don’t apply.

The following are three viewpoints by concerned business owners in the metals industry. Names have been withheld for obvious reasons.

Who are the real victors of the strike?

Numsa’s extended strike had little to do with workers’ rights and more to do with a thinly disguised intention of developing a higher political profile for the organisation. It is common knowledge that Numsa intends on forming a political party. However, if big Jim continues to lead the country down this path to poverty, he may find as he “toyi-toyis” his way into the palatial homestead, that the fire pool has turned green, the tuck shop is empty, the presidential jet that has been grounded with flat tyres and no fuel, parked in a rusty hanger mostly stripped bare and being used for shelters in the newly built squatter camp, by residents who found the instant lawn on the artificial soccer pitch quite appealing.

Who are the real victors of the strike? Certainly not our company which has had the year’s profits wiped out. Certainly not our workers who have lost a great deal of money and now have to work a four day week. Certainly not government who faces negative growth, recession and who is viewed as powerless in the face of the unions. Perhaps the only organisation seen to be benefiting is the Numsa body itself. Their claims of victory may be believed by the ignorant, uneducated or dim witted, which may increase their membership and thereby the monthly contribution received in the short term. However, the damage done to individuals and the personal hardship that they have had to endure may begin to influence the vast majority of their membership to rethink. They may find their members becoming disillusioned. They may in fact begin to lose membership. I know it has already begun to happen in our company.

A concerned business owner

Profits for the financial year to date wiped out, staff lose thousands in pay, annual dividends destroyed, consumer confidence eroded, relationships between business owners and staff severely damaged, a depreciating currency, a country on the verge of a negative growth rate, are just a few of the disastrous consequences of the recent month-long strike in the metal industry.

Government once again proved that they are powerless to prevent unions dictating who does, and who does not, have the right to work in South Africa in 2014. Numsa successfully intimidated, threatened and assaulted people who tried to work. Numsa shamelessly damaged and vandalised company properties whilst government and the police force looked on. With its 200 000 members, Numsa was able to bully industry into shutting down, affecting millions, from the local food vendor on the street corner, who had no lunch customers, taxi drivers who had no fares to transport, to suppliers to the industry and related services, to banks, retailers, medical aid funds, etc., who did not receive money for bonds, accounts, or monthly subscriptions. Workers who were forced against their will to endure a no work no pay situation. Industries across the board were negatively affected by this strike.

Numsa declared the strike a victory, yet an analysis of the figures shows a very different picture. In a financial year which runs from March through to February, our company had operated profitably during the months of March through to the end of June. The professionally and successfully managed business’s financial records show that the company was on target for a good year, with healthy growth and sound financial management policies in place. The company could have expected to make sizable profits as well as being able to declare solid dividends for the company shareholders. Our companies’ shareholders are made up of the majority of the staff who will eventually own 47.5 % of the company. These are the same staff that were threatened and intimidated into staying away for a month.

The loss of production for the entire month of July has completely wiped out the profits made from March to end June. The monthly fixed costs, rent, machinery installment agreements, electricity, rates, insurances etc., are high, and margins in a competitive industry are small. Our company is very dependent on production volumes in order to be profitable. Numsa’s denial of people’s right to work, has therefore ensured that the same people whose best interest that they pretend to represent, will lose dividends as well as the ability to “pay off’’ shares through company profits. The company now faces a serious cash flow problem and has had to look for ways to cut costs. Once again it is individuals that have to pay the price. The company has unfortunately embarked on a four day week programme, not because of a lack of orders, but rather in an attempt to save the company and generate a positive cash flow position in as short a period as possible.

The owner of our company was one of the first to pioneer real empowerment of his workforce by implementing the opportunity for workers to own 47.5% of his company. This progressive and proactive programme specifically developed for the company at no cost to any staff member, is being severely hampered by narrow minded organisations like Numsa, who falsely accuse this business of racist colonialist policies.

Honest hardworking business owners who have started businesses from scratch, have exposed themselves to huge personal financial risk, and have dedicated their lives to building up successful operations, now find their businesses under threat. Government is doing little or nothing to protect businesses from unions and business owners will in the interest of self-preservation make firm decisions. Many business owners will sell up, while others will relocate, possibly even into African countries north of our borders, where business conditions are becoming more attractive. Many more business owners however will take the decision to automate their plants and one can expect large cutbacks in the labour force in favour of automation. Numsa has left business owners very little option.

A study of figures also reveals just how much individual workers lost throughout the course of the strike. The losses are quite staggering. Analysis of the percentage increases received at our company show that the company gave an average of 12.31% per employee in 2013. The highest increase received was an astonishing 46% by one individual who upskilled himself, whilst the lowest was 7.8% (still higher than the industry 7%) by a high earner who performed poorly. Our shop steward happily chanted his way out into the street with a cool 22.22% 2013 increase in his back pocket! The new average increase per worker following the strike in 2014 is 9.6%, 2.7% lower than our 2013 average. Numsa claims this to have been victory! Our records show that our company has consistently paid staff more than the prescribed annual increase since company inception. We believe that this will be the first year that this will not happen. This is a direct result of the strike.

Our figures show that a Grade H worker on minimum wage who was on strike for 20 days, lost R5 520.00. We have calculated that it would take that worker 4.2 years to recoup his losses. Similarly our spread sheet illustrates that a Grade D worker lost R7 393.00 and will take 7.89 years to recoup the loss, a Grade B worker lost R7 919.00 will take 14.1 years, and a Grade A worker who lost R10 479.00 and only received an 8% increase, will never recoup his losses. Yet Numsa claim a victory for the workers!

SEIFSA wage negotiations were a farce

Were the negotiations about wage increases this year or were Numsa adamant that they wanted a strike to gain prominence in the race with Julius Malema, Joseph Mathunjwa (Amcu) and Numsa general secretary, Irvin Jim?

Long before negotiations were deadlocked Numsa declared their intention to go on strike.
Ironically, I think this is the longest strike the metals sector has had in the last 20 years and SEIFSA, on behalf of the employers, has been more than generous in its offerings to the unions. In fact the offering of wage increases has not changed by more than 0.5% over the 2nd July offer yet the strike dragged on for four weeks because of section 37 – none of our employees even know what this section is all about.

So Irvin Jim won the war with a 34% increase for his troops (that remain employed) over the next three years. The economy is in recession, we have an abundance of unemployment, we have an industry that cannot access the minimum youth subsidy as its wages are too high and yet we still give a 10% per annum increase. This will undoubtedly continue the decline of employees in the metal industry. The General Secretary of the Bargaining Council (MEIBC) said recently on national television that the industry lost 700 000 employees.

Employers need to assess their allegiance to SEIFSA who again have rolled over and given unreasonable and unaffordable wage increases in an industry that is battling to survive. Neasa appears to be the Association (that SEIFSA loves to hate) who are willing to support small and medium enterprises. Neasa have locked out their employees as they have only offered 8% increases. The minister may still decide to enforce a bylaw that SEIFSA and the Minister of Labour negotiated for a package across the board.

We undertook a simple exercise to see:
a) How successful our industry has been in negotiating wage increases each year
b) The impact of this on employability versus automation

and came up with the following numbers:

A. Wage Increases

1. Base Rate increases

The actual and CPIX increases over the period 1997 to 2014, using April CPIX rates and more recently CPI as the benchmark, are as follows for a Grade G employee:

These increases are only base rate increases and do not include some of the less tangible costs incurred over this period, namely:

a) Three days family responsibility leave
b) An extra weeks leave taken a year earlier
c) Increase in overtime rates from 1.3x to 1.5x normal rate
d) Reduction in working hours from 45 hours to 40 hours/week
e) Payment of overtime after 40 hours/week and not 45 hours/week
f) Increase in afternoon shift rate from 7.5% to 8%

2. Closing of the “wage gap”

It could be argued that the lower income population has had a much greater access to our government’s free housing programme. Assigning a Rand value to this is difficult but we came up with the following numbers:

R30 000.00 RDP government house paid over 20 years at 11.5% is equivalent to R320.00 per month
6 000 litres of water at R8.00 per kilolitre is equivalent to R48.00 per month
150kW of electricity at R0.60/kW is equivalent to R90.00 per month
Most employees will have one child grant of R240.00 per month eachTotal: R698.00 per month given by Government

The question then begs – Do we still need differential wage increases in:
a) Grade H to A?
b) KwaZulu Natal to Gauteng where salaries are 20% higher and cost of living is higher
(properties, toll roads, insurance etc.)

The average wage increase for grade G over the next three years is 10% per annum. The average wage increase for grade A (artisans) over the next three years is 7.5% per annum.
If this wage increase differential continues for the next 23 years then the operators will earn the same as artisans! Makes sense doesn’t it when you have a shortage of artisans and a surplus of operators.

(The above is based on scheduled rates. In the real world the artisans are paid higher than the minimum rates due to supply and demand. The operators are not paid less than the scheduled wages in spite of the excess supply of operators!)

B. What impact does this have on employability and automation?

In 1996/7 the Grade G wage rate was R8.69 per hour. Working a 50 hour week (45 hours normal time and five hours overtime) and adding 31.55% cost to company (UIF, 13th cheque, leave, sick leave, compassionate leave, NIC levies) resulted in a cost to company of
R29 687.00 per annum.

Remember you don’t recover 52 weeks work back for this, only about 47 weeks which pushes the actual cost per hour to approximately R16.00 per hour!

Purchasing a piece of capital equipment in 1997 for R110 000.00 at 19.25% interest and using a five year payback gave an annual repayment of R29 000.00 which made it costly to automate.

In 2014/5 the Grade G wage rate is R35.40. Times have changed and the standard number of hours of work per week is 40 hours, overtime rates have increased to 1.5x and levies have increased. This has resulted in the cost to company (for a 50 hour week) increasing to
R141 741.00 per annum (using 52 weeks per year and 40% cost to basic).

Our government has introduced some capital incentives, one of which is the MCEP (The Manufacturing Competitiveness Enhancement Programme), which pays 30% of the capital back. Taking this into account, with current interest rates of 9%, and the cost to company for employees allows us to buy a piece of capital equipment for around R785 000.00 to replace one operator with a five year payback.

This of course only assumes:
a) your new piece of equipment only replaces one person and works a single shift five days a week!
b) labour rates do not increase over the next five years!

We are finding it incredibly easy to automate a cell for around R500 000.00 and reduce employment by three employees!

C. What does the future look like?

1) Our government is discussing the possibility of all employed people joining a new low cost medical aid to be subsidised by employers. Let’s assume the total cost is R300.00 per month and we have to pay half of this.
2) SEIFSA has informed us that the employer will increase contributions to the Metal Industries Provident Fund from 6.5% to 15% over the next 22 years.

The costs continue going up with no give and take in terms of productivity.

Summary
Is there any incentive for business to employ more people? Is this what our country needs – automation?

SEIFSA needs to be complemented on taking the non confrontational approach over the last 20 years and invariably giving into the Unions demands and passing these costs onto industry. Employment numbers continue to decrease, companies invest less in their operations and businesses close. The only real winners are the people, that are in the serious minority, that are still employed whose wages are now 45% greater than inflationary increases over the last 20 years.

A country that has a strategic advantage of an abundance of labour is not using this resource due to it being out priced by the capitalist Union leaders! The losers are the unemployed, balance of payments, crime and a good quality of life for all South Africans!